Selloff clause in FDI approvals stays with rider

NEW DELHI: The government has decided not to dilute the divestment clause in foreign investment approvals if it does not contradict with changes in FDI caps instituted thereafter. The issue had cropped up with the appeal of Muller Martini, a company involved in machinery sales and installation activity, to delete the 26% equity dilution provision in the original foreign investment approval.It is learnt that the foreign investment promotion board (FIPB) has rejected the proposal. This comes at a time when the government has been deferring such cases where policy changes made at a later stage upholds the case for allowing wholly owned subsidiaries for MNCs. Muller Martini India Pvt Ltd, whose 100% equity is held by Muller Martin (Singapore) Pte Ltd, was required to divest 26% of its equity stake in favour of Indian promoters within five years of operations.This period has already expired last September as the foreign collaboration approval is dated 5th Septembera™1997.The company has stated in its application for deletion of this clause that attempts to comply with the condition have not met with success so far and there is a reluctance of Indian investor to come forward given the gestation period involved in investment. The company made a turnaround last year and was able to eliminate its carry forward losses.The FIPB has rejected the proposal on the grounds that deletion of entry level conditions was not being allowed and hence it cannot be agreed to.Recently, the board has been getting a number of applications asking it to dispense with the conditions that are not in conformity with the hike in FDI caps. Last week, the FIPB had decided to defer decisions on such proposals until the policy position is clarified and had called for a higher level review on the issue.However in this case the company has not raised any such contradiction arising from policy changes.